The third horseman of the IP Apocalyps: Open Source

1. What is Open Source?

Open Source is a system to license software. There are many different definitions of Open Source. One of the better ones can be found on Wikipedia. In essence, Open Source software is software that is licensed under a very different license from proprietary software. When buying a license (right to use) to traditional, proprietary software, the user gets limited rights (run the product in a certain environment, limited to #users, no access to source code, no right to modify, etc.). Open Source software reverses that position. The user gets very wide rights: access to source code, the right to modify the product and the source code, no limitation on the usage (any machine, any number of users). Often, Open Source software is provided without initial license fee, but this is not necessarily the case – the provider has the choice whether to charge a fee or not.

Open Source is based on a philosophy that wants to guarantee users of software the four “fundamental” freedoms of Open Source.

They are:

  • the freedom to use the software
  • the freedom to understand the software
  • the freedom to reproduce and distribute the software
  • the freedom to change the software

As any freedom, these freedoms have a certain scope. E.g., the freedom to use includes the freedom to use the software in any way the user wants, but also in any technical environment. This means that Open Source will be incompatible with what is generally called the “software ecosystem” principle, where software is developed to work in only one specific environment.

In a similar way, the freedom to understand and to change the software obviously implies that the user should be able to get access to the source code; from a technical point of view, that is the best way to achieve both those freedoms.

But Open Source is not just about freedom – it also comes with important duties.

While users of Open Source typically do obtain the four fundamental freedoms, often Open Source software comes with the duty to maintain its Open Source character. That means that users, when adapting the product, or reselling it, must respect and maintain the Open Source character, including for their own modifications or new developments on the product. This is called the “copyleft” or “viral” effect: Open Source affects the technology it interacts with, and new developments based on Open Source often have to be Open Source as well.

Courts have repeatedly enforced the duty to maintain the OSS character of OSS, and the duty to apply the OSS license to modifications or derivative products has, until now, consistently been upheld when challenged in courts in different countries.

Contrary to what could be expected under traditional business models based on charging for licenses with limited freedoms, OSS has known a tremendous success. According to some sources, more than 35% of all code developed in 2012 throughout the world is OSS, and its economic value is considered in tens of billions of dollars worldwide. As OSS adoption increases and spreads from its original B2B approach to many other domains, we observe that a lot of development tools and libraries are OSS, and often OSS is used and found much more than one would expect. Most of the Internet infrastructure worldwide runs on OSS.

Again, contrary to what could be expected, “Open” software is often more secure and robust than proprietary products. This is, among others, due to the fact that OSS products rely on input from user communities, which tend to weed out bugs or vulnerabilities much more efficiently than traditional QA processes. Among other reasons, this is due to the leverage effect of an OSS community.

Three other, important, characteristics of OSS are:

  • First, OSS comes in a very wide variety of licenses. They range from very permissive, where the user can do pretty much anything, even reselling as proprietary code, to very restrictive, where the user must strictly follow rules on how any code is re-distributed. It should be noted that the “restrictive” character relates to the legal conditions of the OSS license, rather than the “open” character of the code itself. Several hundreds of licenses are known, and new ones are created regularly.
  • Second, the main risk related to OSS lies in combining OSS with proprietary products. This is due to the so-called “copyleft” or “viral” effect. Under certain licenses, when OSS code is combined with proprietary products, there is a duty to apply the OSS license to the whole of the combined product. This can lead a software manufacturer to incur the duty to publish source code of proprietary products, and disclosing some core technology or intellectual property.
  • Third, the business model applied to OSS is often quite different from that applicable to proprietary software. The classical model of an upfront license with maintenance/support often does not work very well. Many different business models can apply to OSS, but often there is a combination of subscription or services.

2. Impact of Open Source on Intellectual Property

From a legal perspective, Open Source is – or at least uses – Intellectual Property. The GPL license, one of the most widely used licenses with the best-known viral or copyleft effect, relies on both copyright law and patent law – without these IPR laws, the Open Source license would not be enforceable.

Yet, from an economic perspective, Open Source is the very opposite of Intellectual Property. Intellectual Property theory starts from the assumption that it is necessary to provide certain exclusive rights (from an economic perspective, a monopoly), within certain limitations. The purpose of these exclusive rights are, officially, the promotion of innovation. IPR economic theory states that without the necessary IPR protection, no (or, in any event, significantly less) investment in innovation and creativity would occur.

Open Source flatly contradicts this Intellectual Property paradigm, by prohibiting the very essence of the Intellectual Property based business model: the ability to restrict use, re-use, copying, distribution, and derivative works.

The Open Source model imposes the four freedoms, which are anathema to Intellectual Property, not only when the product is released for the first time. Open Source forces the freedoms of its business model all across the value chain – any derivative product or development that continues on the basis of existing Open Source code, must also be Open Source.

Therefore, from an economic perspective, Open Source provides a rather unique experiment. We have two economic systems, one based on IPR principles (Proprietary software), and one based on anti-IPR principles (Open Source software). And the really interesting observation is that they compete in what is arguable a real level playing field. The reason for this level playing field is the intellectual innovation that is the GPL Open Source license. Through its “copyleft” or “viral” principle, the GPL ensures that Open Source software cannot be captured by proprietary developers, as would be the case for code that would be simply released in the public domain. Software code that is in the public domain is not protected from anyone taking it, slightly modifying it, and then claiming proprietary rights in the result, thereby “enclosing the commons”.

This is not possible for Open Source code. It must remain Open, and is protected from “IPR-grabbing”.

Therefore, we can say that the competition between Proprietary software and Open Source software provides a real-life, empirical test on the validity of the economic theory of Intellectual Property.

If the economic theory of Intellectual Property is correct, and exclusive protection is a necessary (or sufficient) condition to yield higher levels of innovation, then we would see Proprietary software enjoying higher levels of innovation. Normally, this would lead to higher market share for Proprietary software, and would cause Open Source software to be relegated to niche or fringe markets of the software industry.

If, on the other hand, Open Source software were to yield higher levels of innovation, it would take over market share from Proprietary software, even though no upfront licenses are available to reward such higher level of innovation. This would, in turn, mean that in at least one technology market, the theory of Intellectual Property is empirically disproven.

Therefore, the impact of Open Source in Intellectual Property has the ability to be quite profound. Not so much in terms of the technical capability to enforce or use IPR, but rather at a more intellectual level – does IPR do what it is supposed to be doing (promote innovation) and how does it fare against when competing against an anti-IPR system when they compete on a level playing field.

3. Who wins?

The results of any analysis are quite interesting.

In 2006, 10% of IT portfolios (software used by companies) consisted of Open Source. According to Gartner’s OSS Adoption Survey 2012, in 2012, the number was 30%.

In the markets of operating systems, web server software, internet browsers, database software, data processing software, CMS (content management systems), mobile operating systems, market share of Open Source continues to grow, pushing ever more Proprietary software providers into niche positions.

Pretty much all of the Internet runs on Open Source software, and most SaaS business relies very heavily on Open Source software.

In fact, to the knowledge of this author, there is no market where Proprietary software systematically takes away market share from Open Source software.

It is not a question as to who dominates a given market today – it is quite clear that in certain software markets, such as desktop office applications, the Open Source market share is quite small. The question is about the fundamental trend in the market, over a number of years. There seems to be no market where, as a fundamental trend, proprietary software takes away significant market share from Open Source.

The opposite trend occurs in a number of markets, from server software to mobile operating systems, with the database market currently being the one where the most advances of Open Source software are visible.

It is not clear yet what the criteria for an Open Source breakthrough in a market are; but we do observe breakthroughs only in one direction: away from proprietary software, with more and more markets having a significant or dominant presence of Open Source.

Does that mean that Open Source is right for every market? Of course not. One key condition for a successful Open Source platform or product is the existence of a community of contributors – and not all markets can provide such community.

However, the observation remains that, today, it is Open Source that is seen as the most innovative approach to developing software.

As a result, Open Source is a direct challenge of the Intellectual Property paradigm, according to which the granting of exclusive rights will cause higher levels of innovation, by providing empirical evidence to the contrary.

This goes to the heart of the theoretical construct of Intellectual Property: if empirical evidence in one market shows that more innovation occurs when IPRs are – from an economic perspective – permanently disabled, what does that herald for the discussion on whether “stronger IPRs cause more innovation”?

 

 



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